The 2021 Guide To Pricing Interior Design Services for Greater Revenue and Profit: Part 1 Charging By the Hour
We’ve put together this step-by-step guide to help you determine how to best price your design services
If you’re just stepping into the interior design world, you might have questions about how to price your services. You’re not alone. There are a number of models out there, and some professionals even use a hybrid. The problem is picking a model that is best – not only for you – but for your business profitability, growth and clientele. To simplify the process of making that choice, we’ve put together this step-by-step guide to steer you in the right direction. It includes advice from seasoned professionals, whose experience can help you understand how to position your business to be profitable, reputable and a draw for new clients.
Choose a Pricing Model That Best Reflects Your Work
In the design world, “one size fits all” doesn’t apply. There are three main pricing models favored by design professionals, but what works for one doesn’t necessarily work for another. We’ll outline them here, so you can decide which would best suit your business, taking into account your personality, work ethic, job scopes and so on.
Model #1: Charging by the Hour
Charging by the hour is a popular choice in the business world, including among design professionals. You might choose this model because it adds a level of clarity between you and the client, plus it covers you financially if there are any delays. Others might decide against this model because they feel it could undervalue their time or because it carries a significant administrative burden.
Charging by the hour also has the potential to rub clients the wrong way. According to design pro Kaitlyn Wolfe of Iconic Design + Build, “Clients may feel like they’re being nickel-and-dimed with every hour, when you have to add up time for email communications or redoing drawings. They might be more defensive when they receive invoices.”
On the other hand, Jeannine Burnett of Access Design + Build charges for her hours on the front end, such as for consultations. “At the end of the day, it’s my skill and it’s my hours that you’re getting, regardless of whether I’m shopping, designing, consulting or doing whatever for the project,” she says. “It’s still my time, and my hourly rate shows this is how much my time is worth.”
- Adds a level of clarity between you and the client
- Covers you financially if there are delays
- You’re fairly compensated for total time spent on a project
- Incentivizes clients to make quicker decisions and not waste your time
- May work inversely to undervalue your time
- Has the potential to irritate clients
- Carries a significant administrative burden
- Is most likely to undercount or over-count your hours, as 100% accuracy in time tracking is difficult to achieve
Interior design business management solutions like the Houzz Pro have significantly reduced the burdens of this model with tools such as automated change order templates, time tracking, billing and invoicing, and many other built-in features to expedite your project administration and management.
How to Determine Your Hourly Rate
Start by researching the current market. Search online for what Interior Designers in your area take home each year. From the free salary research services like ZipRecruiter to the ASID’s bi-annual Interior Design Salaries & Benefits Report, there are a number of resources available for you as an interior design professional to better understand current market salaries and rates. Such information can help you set the benchmark for what you might expect to earn annually, which you can use for any hypothetical pricing equations.
Ask fellow professionals what they charge for similar projects you want to be doing, and find out what pricing model they use too. It’s always a good idea to listen to seasoned professionals, as they’ll know first-hand what it’s like to be in your position, as well as what has worked to help them prosper financially.
Do the Math
A successful business is one that makes money. Even if you’re still figuring out how to turn a profit with your business, chances are you’ve been exposed to or involved in at least one project in the past. Use this past project as your base to figure out how much you would like to make off a new project. Did you or the team involved with the past project make enough profit?
Income minus your overhead costs equals profit. Although that equation seems simple enough, there are many factors to consider, and the numbers can be difficult to project, especially when you’re just starting out. But it’s not impossible. We recommend estimating these figures and applying them to a yearly analysis. How many projects would you want to take on in a year, realistically?
Let’s say that number is ten. Outline what you expect your total annual overhead costs will be for all projects, including anything you need to keep the business running: insurance, rent, trade groups, utilities, equipment costs and maintenance.
Add to this the job costs, such as materials, crew salary (including vacation pay or benefits), subcontractors, even gas. Overhead plus job costs gives you the yearly cost of doing business — the figure you’ll need to surpass in order to be profitable.
Divide this figure by ten, add on the amount or percent of profit you’d like to make, and you’ll have an estimated billable rate for each project. This rate can be used as a basis for an hourly rate pricing model, and for other models we will explore in coming series.
Discover all the pros and cons of a fixed rate pricing model, including how not to underestimate your worth.
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